Weekly Market Update: Risk-on sentiment prevails despite mixed data and earnings reports
Rates and stocks moved higher in a holiday shortened trading week for the US. Central bankers used the Davos forum to push back on the markets' current optimism for 2024 rate cuts. Economic data mostly supported that message as well. US manufacturing numbers were mostly subdued but December US retail sales and housing starts/permits, in particular, were stronger than most expectations. Weekly jobless claims came in below analyst estimates yet again. UK CPI was hotter than expected, as inflation there accelerate for the first time since last spring. Chinese stimulus expectations also underpinned sentiment after officials in Beijing confirmed they were discussing CNY1T in ultra long-bond issuance to fund various projects.
Geopolitical hotspots remained a concern, but markets largely looked past any expected lasting effects. Houthi fighters continued their intermittent attacks on ships in the Red Sea, drawing reprisals from the US and UK in Yemen. President Biden confirmed the US would continue preemptive air strikes against Houthis weapons systems. Russian stepped up missile attacks on Ukraine residential areas as President Zelenskiy attempted to solidify support in Davos. By Friday, NATO was said to be mobilizing 90K troops for the largest military drills since the Cold War next week. Meanwhile in Asia, North Korea conducted a test of an underwater nuclear weapons systems after fresh long range missile launches earlier in the week. Davos also saw lots of officials hand-wringing over the consequences of a second term for former President Trump after he easily won the Iowa caucus and remained well ahead in the New Hampshire primary polls. The Dollar index touched its highest levels since early December, while Bitcoin reversed and moved lower. Oil prices were little changed along with gold. The US 10-year yield backed up ~20 bps on the week to finish around 4.15%. For the week, the S&P hit all-time highs, adding 1.2%, while the DJIA rose 0.7% and the Nasdaq was up 2.3%.
In corporate news, financials were heavily featured among the earnings reports this week, and some tech names continued to shine. The regional banks took their turn at reporting quarterly results, and many still look shaky almost a year after the mini-crisis in the sector. Discover Financial posted disappointing results as well, as its charge off rate nearly doubled to over 4.1% for the quarter. Some other financial firms fared better, including The Travelers, which blew out earnings expectations and affirmed long term guidance, and Ally Financial, which beat estimates and announced the divestiture of its POS financing business. Humana slashed its FY23 forecast on higher medical costs, dragging down the healthcare sector. Advanced semiconductor names benefited from strong guidance out of Taiwan Semiconductor and Super Micro, sending a number of companies in that sector to fresh all-time highs. M&A news featured two big deals falling apart: A federal judge blocked Jetblue’s acquisition of Spirit on antitrust grounds, pushing Spirit toward a restructuring, and the European Commission is reportedly preparing to deny Amazon’s plans to acquire iRobot.
WEEKEND
(TW) TAIWAN’S RULING DEMOCRATIC PEOPLE’S PARTY (DPP) WILLIAM LAI WINS PRESIDENTIAL ELECTIONS WITH ~40% OF VOTES (AS PREDICTED BY THE POLLS); DPP party did NOT win parliamentary majority, but won unprecedented third consecutive presidential term
ALK Confirms FAA extended grounding of Boeing 737 MAX 9 indefinitely; FAA requires more data from Boeing before
(CN) CHINA PBOC CONDUCTS CNY995B VS. CNY900BE IN 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) AT 2.50% VS. 2.50% PRIOR
(US) Senate Majority Leader Schumer on Stopgap spending bill: House & Senate to release stopgap spending bill to Mar 1st and Mar 8th (from current Jan 19th and Feb 2nd, as speculated earlier in the weekend)
AAPL Said to offer up to 5% discounts for some products in China, including iPhone 15, for the first time in few years ahead of Chinese New Year - press citing company website
MON 1/15
(US) Fed’s Bostic (dove, voter): Inflation could “see-saw” if Fed cuts rates too soon; The descent towards 2% target is likely to slow in the months ahead; Taking a closer look at liquidity conditions
Qatar pauses its gas shipments through the Red Sea and Suez Canal - press
(DE) German army reportedly considering the possibility of a Russian attack on NATO's eastern flank as early as 2025 - Bild
(US) Reportedly Pres Biden and other senior US officials are becoming increasingly frustrated with Israeli PM Netanyahu and his rejection of most of the administration's recent requests related to the war in Gaza – Axios
PAGE.UK Q4 Trading Update: Gross Profit £237M v £253Me, -8.9% y/y (cc); Trims outlook citing macro-economic uncertainty persists
PAGE.UK Exec: Early 2024 shows reasonable activity; No further deterioration in US business - post earnings comments
US federal scientists conclude Marijuana should be removed from the US's most restrictive Schedule 1 category of drugs - NYT
(US) Houthi Negotiator*: All ships in the Red and Arabian Seas are safe, except vessels headed to Israel; We do not want escalation, we regret US and UK's militarization of the Red Sea
(US) On a House GOP conference call Sunday night, House Speaker Johnson said Congress can’t solve the crisis at the border until Trump or another Republican is in the White House; This could signal the end of the road for U.S. aid to Ukraine, a major Biden administration priority - Punchbowl
RIO.AU Reports Q4 Pilbara Iron-ore Shipments 86.3Mt, v 86.7Mte, -1% y/y; Notes US economy is slowing down with labor market cooling; China economy stabilized earlier in Q4
(US) Former Pres Trump projected to win Iowa Caucus (as expected); With ~90% of vote counted, Trump has 50.9%, DeSantis has 20.0% and Haley 19.0%; Vivek Ramaswamy suspends Presidential campaign - media outlets
(CN) China reportedly told some institutional investors not to sell stocks; China regulators reimposed stock-selling restrictions on securities to stabilize the stock market - FT
TUES 1/16
(IR) Reportedly Iran’s Revolutionary Guard deployed in Yemen and playing a direct role in Houthi rebel attacks on commercial traffic in the Red Sea - Semafor
(CN) Chinese banks reportedly tighten curbs on Russia after US sanctions order; Chinese banks said to stop providing any financial services to the Russian military industry regardless of the currency or the location of the transactions - press
CARD.UK FY23 Trading Update: Strong Christmas trading performance with LFL store Rev +7.8% in Nov-Dec; Pretax ahead of market expectations, FY23 Rev £476.9M v £432.6M y/y
Leading mining group Rio Tinto warns US economy is slowing down with labor market cooling; Summary of recent profit warnings and comments on global consumer state made by European, Asian and US firms
(CN) CHINA CONFIRMS MORE STIMULUS WITH CNY1T OF SPECIAL ULTRA-LONG SOVEREIGN BONDS - PRESS [**Note: would be 4th such sale in the past 26 years]
(US) House and Senate negotiators have reportedly agreed on a ~$78B framework for a package of tax benefits aimed at businesses and low-income families - press
PNC Reports Q4 $3.16 v $2.99e, Rev $5.36B v $5.28Be
PNC Guides Q1 average loans stable q/q, NII -3% to -2% q/q, Rev -4% to -3% q/q - earnings slides
AXP Reports Dec Master Trust: Net Write Off Rate: 2.5% v 1.7% prior
GS Reports Q4 $5.48* v $3.47e, Rev $11.3B v $10.7Be
ANSS Confirms to be acquired by Synopsis in $35B cash-stock deal; Ansys shareholders to receive $197/shr cash and 0.3450 shares of Synopsys common stock; Expected to Be accretive to Non-GAAP EPS within second full year and substantially accretive thereafter
(US) JAN EMPIRE MANUFACTURING: -43.7 V -5.0E (lowest since May 2020 and lowest ever ex pandemic, below all analysts' estimates)
(CA) CANADA DEC CPI M/M: -0.3% V -0.3%E; Y/Y: 3.4% V 3.4%E
(US) Fed's Waller (voter, hawk): Will be able to cut the policy rate this year as long as inflation doesn't rebound or stay high
(US) NY Fed takes $583.1B (v $603.1B prior) in RRP program at 5.30%; 65 participating and accepted counterparties (lowest dollar amount since June 2021)
(CN) CHINA DEC INDUSTRIAL PRODUCTION Y/Y: 6.8 % V 6.6%E
(CN) CHINA DEC RETAIL SALES Y/Y: 7.4% V 8.0%E
WED 1/17
1211.HK Launches its AI-powered smart car system; Plans to add its “navigation-on-autopilot” feature**; Plans CNY100B (~$14B) investment to develop smart cars features - China press
(UK) DEC CPI M/M: 0.4% V 0.2%E; Y/Y: 4.0% V 3.8%E (1st acceleration since spring 2023); UK ONS notes acceleration was also driven by a rise in tobacco duty in late Nov
(EU) ECB'S CHIEF LAGARDE: ECB LIKELY TO CUT RATES BY SUMMER [*Note: first major central bank head to provide specific forward guidance on rate cuts]
DPW.DE CEO: Container imbalances may start to appear in Asia; Concern in Red Sea context is that extending shipping routes could lead to a shortage of containers
1919.HK Exec: COSCO sees spot shipping rates may stay higher-for-longer; COSCO has also had to redivert some services via the Cape to the US East Coast given Panama Canal drought issues; Not seeing much evidence of box shortages or port congestion yet
HLAG.DE Enters operational cooperation with Maersk, starting Feb 2025; Targets delivering schedule reliability >90% once fully phased in; Hapag-Lloyd will leave THE Alliance end-Jan 2025
MAERSKB.DK *CEO: SEES RED SEA EVENTS LASTING ‘A FEW MONTHS’; TIMELINE CAN ALSO BE LONGER - DAVOS
(IR) Iran and Pakistan conduct joint naval drill in Gulf and the Strait of Hormuz [~20% of world's total oil consumption passes through it]
JPM Head of Asset Management: JPMorgan faces 45B attempted hacks daily; This number doubled in just one year
CFG Guides initial FY24 NII -9% to -6% y/y, NIM 2.80-2.85% v 2.85% in Q4 2023; Significant NII contribution from Non-Core and swaps in 2025 and beyond - earnings slides
USB Credit quality normalizing to pre-pandemic levels; Increases in delinquencies for the Commercial portfolio this quarter were primarily administrative in nature; Well-positioned for 2024 and beyond - earnings slides
(DE) German Economy Ministry spokesperson: Effect of Red Sea attacks makes delivery times up to 20 days longer on individual cases in industrial production sector
PLD Reports Q4 Core FFO $1.29* v $1.26e, Rev $1.89B v $1.78Be
(US) DEC ADVANCE RETAIL SALES M/M: 0.6% V 0.4%E (biggest jump since Sept); RETAIL SALES (EX-AUTO) M/M: 0.4% V 0.2%E
(US) DEC IMPORT PRICE INDEX M/M: 0.0% V -0.5%E; Y/Y: -1.6% V -2.0%E
(US) Fed’s Bowman (voter, hawk): The Fed should seek comments on any revised capital plan; Fed's Basel III proposal needs substantive changes to adjust known deficiencies
(US) Mid Jan Manheim wholesale used vehicle Index at 201.9, -1% m/m, -10.3% y/y
(US) JAN NAHB HOUSING MARKET INDEX: 44 V 39E
(US) Atlanta Fed GDPNow: Raises Q4 GDP from 2.2% to 2.4%
AA Reports Q4 -$0.56 v -$0.99e, Rev $2.60B v $2.61Be
DFS Reports Q4 $1.54 v $2.50e, Rev $4.20B v $4.10Be
DFS Guides initial FY24 avg Net Charge-offs rate 4.9-5.3% v 4.1% end-Q4 2023; Total opr expenses up mid single digits - earnings slides
(AU) AUSTRALIA DEC EMPLOYMENT CHANGE: -65.1K V +15.0KE; UNEMPLOYMENT RATE: 3.9% v 3.9%E
(IR) Pakistan confirms to have conducted retaliatory airstrikes inside Iran - press
THRS 1/18
CFR.CH Reports Q3 Rev €5.59B v €5.55Be, +8% y/y (cc); Americas Rev +8% y/y (cc) v +4.7%e
MAERSKB.DK *Reiterates it encourages its customers to prepare for there to be significant disruptions to the global network and complications in the Red Sea area to persist
TSM Reports Q4 (NT$) Net 238.7B v 226.4Be, Op 260.2B v 325.0B y/y, Rev 625.5B v 625.5B prelim
TSM *CFO: GUIDES Q1 REV $18.0-18.8B V $17.3BE; GUIDES FY24 REV STRONG; SEES REV CAGR 15-20% OVER NEXT SEVERAL YEARS; EXPECTS UTILIZATION RATE TO RISE FOR FY24 - EARNINGS CALL
WOSG.UK Cuts outlook assuming no recovery in consumer demand this FY; Despite a positive start to the early part of Q3 FY24, WOSG then experienced a volatile trading performance in the run-up to and beyond Christmas, as the challenging macro-economic conditions impacted consumer spending in the luxury retail sector
HUM Cuts FY23 $26.09 v $28.27e (prior: at least $28.25) citing higher medical costs/utilization and "more balanced" pricing; Reschedules earnings call to Jan 25th from Feb 5th; Expects individual Medicare Advantage (MA) growth of ~100K members, +1.8% y/y (prior: 'growth at or above industry growth level') - filing
TCOM CEO: Domestic China travel exceeded 2019 levels by over 50%; US still in top 3 travel destinations for China - Davo
(US) DEC HOUSING STARTS: 1.460M V 1.425ME; BUILDING PERMITS: 1.495M V 1.476ME
(US) JAN PHILADELPHIA FED BUSINESS OUTLOOK: -10.6 V -6.7E; Prices Paid: 11.3 v 25.1 prior
(US) DOE CRUDE: -2.5M V -1ME; GASOLINE: +3.1M V +2.5ME; DISTILLATE: +2.4M V -0.5ME
(US) NY Fed takes $618.2B (v $590.1B prior) in RRP program at 5.30%; 81 participating and accepted counterparties
(US) Office of the Controller of the Currency (OCC) Chief: OCC, Fed and FDIC are working on discount-window rule proposal, to push and "require" more banks to use the Fed's discount window at least once a year to reduce the stigma and be ready for troubled times - press
PPG Reports Q4 $1.53 v $1.50e, Rev $4.35B v $4.27Be; H1 conditions to remain subdued in US, Mexico; Believe European economic activity to stabilize in 2024 at current levels
SMCI Raises Q2 $5.40-5.55 v $4.48e, Rev $3.6-3.65B v $2.80Be (prior: $4.40-4.88, Rev $2.7-2.9B)
(JP) JAPAN DEC NATIONAL CPI Y/Y: 2.6% V 2.5%E; CPI EX-FRESH FOOD (CORE) Y/Y: 2.3% V 2.3%E (Core CPI slowest y/y growth since Jun 2022)
(US) New York Fed Report finds early delinquency rates rose for low-income borrowers in 2022 through Q3 2023, exceeding pre-pandemic levels
JBHT Exec: Guides initial FY24 Capex $800M-1.0B v $1.6B y/y; Not so much has changed in regard to the freight environment in early 2024; Seeing inflationary pressures in 2024, but mostly around its insurance premiums - conf call summary
FRI 1/19
(DE) German construction union IG BAU (~1M workers) said to be demanding a pay rise of over 20%, raising inflation fears - financial press
BAS.DE Cuts FY23 Rev €68.9B v €70.6Be (prior €73-76B v €87.3B y/y), EBIT €3.81B v €3.85Be (prior €4.0-4.4B); Notes Chemicals segment EBIT before special items in 2023 falls considerably short of average analyst estimates, among other things due to unplanned plant shutdowns, non-cash-effective impairments**
ABBN.CH Received US House Committee letter on strategic competition with China; States taking seriously
(EU) Reportedly EU preparing to launch mission in the Red Sea, expected to be adopted in Feb 2024; The new EU operation will accompany the British HMS Diamond - ShippingWatch
(US) NATO is mobilizing some 90,000 troops for its biggest military drills since the Cold War, called Steadfast Defender 2024 and starting next week - Axios
(CN) China cabinet said to have instructed heavily indebted local govts to delay or halt some state-funded infrastructure projects; Cites local govts' large debts and weaker growth prospects - press
(DE) Germany Defense Min Pistorius: Putin could possibly attack NATO in ‘5 to 8 years', according to our experts - Politico
HBAN Reports Q4 $0.27 adj v $0.26e, Rev $1.73B v $1.75Be; Believes the operating environment today is generally more constructive compared to last quarter; Customers are generally well positioned and are continuing to invest in their businesses
TRV Reports Q4 $7.01 v $5.01e, Rev $10.9B v $10.9Be
W To cut 1.7K jobs, or ~13% jobs globally; Now expect to deliver over $600M of Adjusted EBITDA in 2024 in a hypothetical flat revenue environment
MAERSKB.DK Implements temporary suspension of bookings to and from Asia/Middle East/Oceania/East Africa/South Africa to Djibouti port city, near the Red Sea on its Blue Nile Express service
ALLY Expect used vehicle values to stabilise in 2025 following three years of declines; Seasonally adj NCOs to peak in H1 2024; Guides initial FY24 NIM 3.25-3.30% v 3.35% y/y - slides
(US) Redfin: January is off to a slower-than-expected start for home sales, likely due to severe winter weather; US pending home sales rose 4.1% m/m in Dec (the biggest increase since September 2021); Mortgage rates posted the biggest monthly decline since 2008
(US) Fed's Goolsbee (non-voter for 2024); We are not off the Golden path, but have not reached the end of it either - CNBC
(RU) Russian troops reportedly plan a large-scale offensive in Ukraine in the summer 2024 - FT citing Ukrainian officials
(US) DEC EXISTING HOME SALES: 3.78M V 3.83ME
(US) JAN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 78.8 V 70.1E
(US) Fed’s Bostic (dove, voter): Wants to make sure we're well on the way to 2% before cuts; Open to changing outlook on rate cut timing on if the data suggests it
(US) Weekly Baker Hughes Rig Count: 620 v 619 prior (+0.2% w/w)